PPP Loan & Forgiveness

May 18, 2020

I recently watched a video for a large airliner make a landing at a major airport in a heavy fog.

The aircraft was one with up-to-date technology operated by skilled pilots. Making such a landing, where you could not see the runway until you were nearly on it could be very nerve-wracking. They were able to make the landing because they knew the constraints of their aircraft and because the technology onboard the aircraft and its communication with ground-based systems. Any failure in any of the systems could have resulted in a tragic outcome.

In our current COVID-19 crisis, lenders are making loans to small businesses under the CARES Act Paycheck Protection Program with a promise from the federal government that these loans will be fully, or partially, forgiven. The problem is that it is hard to discern what that forgiveness looks like because of fog. The Small Business Administration (SBA) has been given control of this program and they have issued plenty of guidance on the loan making aspect of the program, but they have revealed very little about the forgiveness side.

What do we know about PPP loan forgiveness? First, we know that at least 75% of the funds must be spent on payroll. The term payroll is rather broad and encompasses things like sick leave, vacation, medical leave, wages, and salaries to name a few. Second, the loan funds must be spent within eight weeks from the day the business received them. This may create a bit of a challenge for a few small businesses that received the loan but were not able to be open due to forced closures by the State. Finally, and probably the most “foggy”, is that the full-time equivalent employee count on June 30th should be equal to or greater than the employee count from February 15th to try and achieve that 100% forgiveness.

Probably one of the biggest concerns is from the small businesses that had to lay off employees and were not able to rehire until a couple of weeks or so after they received their loan. The state government may still be regulating how much business they can transact by regulating how many customers can be in their establishment. This could inhibit their ability to bring their full staff back. Additionally, some staff may desire not to return yet for any number of reasons. One point of guidance the SBA has offered in this area is that small businesses should make their offer to rehire in writing and get the acceptance or refusal in writing. If an employee refuses in writing to return to work, that refusal will not count against the employers’ employee count when applying for forgiveness.

So how do we land this plane in the fog of forgiveness? We must maintain communication with the lender. We must keep them apprised of how we are working towards 100% forgiveness and make sure that they are in agreement with our plan. We can communicate with our accountants. They are knowledgeable in the PPP loan requirements and can help make sure we have the proper documentation to provide to the lender. This is one topic where you can never ask too many questions. Don’t wait till it’s almost time to land the plane to talk to your lender or your accountant!

“Business Tips” was written by James Leavelle, Senior Certified Business Advisor of Angelo State University’s Small Business Development Center. For more information on the topic of this article or the services of the ASU·SBDC, contact him at James.Leavelle@angelo.edu.